One in nine pensioners has deferred claiming the state pension, in order to enjoy the benefits of an increased benefit when they do.
This the finding of a freedom of information request from Old Mutual Wealth. However, the wealth management company suggests that as time goes on, the number of people delaying their state pension will decrease, as people who are reaching state pension age now will see less benefit from deferring.
In September 2016, 1,562,460, people had deferred claiming their state pension, compared to 12.95 million who were in receipt of the benefit. This confirms that 11% of those eligible had deferred.
Of the 1.6 million pensioners that decided to defer, close to 500,000 opted to take a lump sum in lieu of higher weekly payments. However, this option was only available between April 2005 and April 2016 when the new state pension was introduced and the terms for people deferring the state pension changed.
The remaining 1.1 million who deferred taking their state pension in order to get a higher weekly pension, reached state pension age before April 2016, which means they benefited from better deferral terms than people deferring today.
As such, they get a 1% boost for every five weeks they defer, which racks up to an increase of 10.8% over the course of a year. This compares to an increase of 1% for every nine weeks deferred offered to people that reach state pension age after April 2016 and adds up to just 5.8% over the year.
If you don’t claim your state pension it is automatically deferred.
Jon Greer, head of retirement policy at Old Mutual Wealth comments: “Before the changes to state pension, if you could afford to defer it was a relatively generous option and it makes sense that many pensioners appear to have benefitted from it, although not all will have made the conscious decision to do so.
“However, this option is no longer as valuable as it used to be. Average life expectancy at 65 is 18.8 years for men and 21.2 for women. If you invested the state pension you receive over a year and assume a return that meets inflation, and compared that with the extra pension you would get by deferring over a similar period it is of negligible benefit for men and only slightly better for women. Of course, the decision also needs to take account of a person’s health, their tax position and the effect it will have on benefits such as pension credit and housing benefit, and those considering deferring should seek appropriate advice or guidance."